Friday, July 8, 2011

57,000 - 39,000 = 18,000

Another weaker than expected jobs report issued today.  As with last month's weak figures, it's important to emphasize that job increases in the private sector (while still less than a desirable figure) are being greatly offset by continued job losses in the public sector, particularly in state and local government. For June, the private sector gained a net total of 57,000 jobs, but the public sector shed 39,000 net jobs, resulting in a jobs increase of only 18,000. When we hear Republicans in particular citing the 18,000 figure, we should keep in mind that their advocacy of cutting government spending has contributed greatly to that reduced figure. In other words, they are causing the problem they are complaining about.

Below is a chart from Matthew Yglesias showing the pattern of government job losses during the Obama administration, primarily from laying off many thousands of state and local government workers. (I believe the spike represents temporary census jobs, but the overall downward trend is clear.) The data shows that an astonishing 500,000 public sector jobs have lost in less than three years. If we were truly concerned about jobs at all levels, we would have made a concerted effort to retain these workers. Elected officials are the trustees for the largest employers in the United States. The most direct thing they can do to affect overall employment is to retain public sector employees. Instead they have initiated a concerted attack on public sector employees.

If we are primarily concerned about jobs, which is what the American public consistently reports, it seems the obvious response by the government at all levels should be to stop firing people!  Yet in response to this jobs report and other economic news, we still hear the Republican Congressional leadership, and Republican governors and state legislators, calling for even more layoffs of government employees. Let me try to explain this as plainly as I can: if you fire people you are reducing employment. You are making the jobs figures worse. If you represent the largest employer in America, you should stop laying off so many workers. When we talk about jobs, we must include the jobs of teachers and fire fighters and police officers and millions of other public sector employees. When we lay these people off, we are reducing jobs, and we are doing harm to the economy, because these people are performing valuable work and they are also using their paychecks to buy food, clothing and shelter. When they lose their jobs, they have less money to spend, and they need public assistance. 

The Republican leadership keeps saying that its top priority is jobs. What they should be saying is that they care about reducing the size of government much more than they care about jobs. They want to keep reducing the size of government even though that is greatly harming employment and the economy.

The Republican leadership also needs to start sharing some of the responsibility for these weak jobs figures. They were very quick in the last couple of years to blame the Democrats' policies--including the stimulus, the bailouts, financial regulations, health care reform--for harming the economy, even though the economy was picking up steam and employment was growing at a pretty good pace, while all of those major reforms were taking place. Now we have been living under divided Congressional leadership for a good six months, and we have to start asking what we have to show for it. We are seeing a sharp slowdown in economic growth, and we have to start raising the question whether there is a cause and effect relationship between the new Republican priorities and the weaknesses we are seeing in the economy. There have been no significant jobs initiatives coming out of Congress, indeed no significant legislation of any kind, only more talk of reducing government spending and refusing to raise taxes. It's time to start recognizing that all that talk is contributing to the problem, and not to the solution.

I understand there is a conservative argument that in the long run, reducing the size of the government will make the economy grow. But if you compare the share of the economy represented by government spending in various countries, you find that the American share of government spending as a percentage of GDP is already near the low end as compared to most of the other countries we like to compare ourselves to. Considering that we maintain the largest military by far of any other country, what is remarkable is how we have been able to keep government spending and taxes so low. Given that the US must be placed among the low government spending, low tax countries as compared to other rich countries, those who advocate even lower spending and even lower taxes have a heavy burden to prove that reducing already low spending and low taxes will actually increase economic performance, while maintaining ad adequate level of public services. In the short run, the evidence is already in front of our eyes that those policies are having the opposite effect. In the long run, the case is still hard to make, which is why we have to ask whether we are focused on exactly the wrong problem at the wrong time.


  1. The public sector (Federal, State and local) should have cut back on its workforce and spending back when the recession hit in 2008--when the private sector was shedding jobs. Instead, Obama and Democrats schemed and passed the ARRA which pumped billions of borrowed dollars into State coffers in an effort to create aggregate demand and a job spike before the mid-term elections—the
    effort failed…miserably. What is occurring now in the public sector (loss of jobs) is the inevitable peal of hard economics—goosing aggregate demand with massive government stimulus results in a hangover of deficits and weak economic growth down the road. Now is “down the road.”

    Yet we continue to hear from Dems that funding the public sector, despite deficits and marginal tax revenue, needs to upped. But where will the funds come from? Taxes? Not enough (it will never be enough because the more that is collected the more is spent). There is always more borrowing--LOL!!

    Lastly, comparing U.S. government spending as a percentage of GDP to other OECD countries is useless because it is difficult to tease out a strong correlation between economic growth and high/low taxes and government spending. Countries have too many different cross-current tax laws that make any comparison meaningful.

    Liberals have to give up the idea that more central planning and the confiscation of wealth is going to help the only sector that can save the economy from the doldrums--the PRIVATE sector. Until then, unemployment numbers like today's will continue to be the norm.

  2. Jobs are jobs, VH. You can never convince me that a barista is more important to the economy than a teacher or firefighter or a soldier. Or that an aircraft manufacturer or highway construction contractor working on a government contract do not produce any benefits to the economy. If the problem with the economy is we need more jobs, the solution cannot be to reduce jobs.

  3. It’s not a matter of being more “important” to the economy. Dumping millions and billions of tax dollars on “green collar jobs” politically chosen by the Obama Administration and that ultimately there is no market for right now is simply creating government mandated jobs through wishful thinking. No real value or demand is created. It’s like hiring people to dig holes and then having them fill the holes back up and then claiming that "important" jobs were created by government. But the truth is that no one in their right mind would want to pay for such a thing. But if the government says it’s needed and wants to tax you for it…hey! It’s all about job creation. Right?

    Bottom line: You can’t pay for teachers, police, roads, and firefighters without the tax revenue generated from the PRIVATE sector. That is the sector that people are willing to part with their hard earned cash for goods and services that have real value for them. Everything else is just rainbows and unicorns.

  4. Joe, to support existing population growth the economy needs to support about 110,000 jobs per month. Even if you remove those jobs the government "lost" you are still far below that target.